September 11, 2002
Federal Reserve Districts
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Economic activity in the Second District has remained sluggish since the last report, except in the housing sector, which continued to show strength. Prices of goods and services generally remain stable. Hiring remains lethargic, though some signs of a pickup were noted in late August. Retail sales were on or below plan in August, though some improvement was noted in the second half of the month. Most retailers describe inventory levels as favorable and report somewhat less discounting than a year ago.
Manufacturers indicate tepid business conditions, with weakness in July followed by a mild rebound in August; business contacts remain optimistic about the near-term outlook, though somewhat less so than in the second quarter. Housing markets have remained strong, with both construction and resale activity described as brisk. Office markets in and around New York City remain slack but have stabilized somewhat. Robust demand for industrial and warehouse space is reported in northern New Jersey. Finally, bankers report a pickup in demand for residential and commercial mortgages but weakening demand for consumer loans; they also report continued tightening in lending standards and stable delinquency rates.
A major regional discount chain, already in bankruptcy, recently announced that it will liquidate its inventory and close all 85 of its stores in New York and four in northern New Jersey; these stores reportedly employ approximately 5,000 sales associates. Separately, a leading wholesaler of women's apparel reports that the business climate is increasingly difficult, with sales volume and merchandise costs holding steady but declining prices hurting margins and forcing some staff reductions. This contact attributed this to weakening consumer demand for clothing and consolidation in the retail industry.
Regional surveys of consumer confidence gave mixed but generally weak readings in August. According to the Conference Board, confidence in the Middle Atlantic region fell to a cyclical low in August, mainly reflecting a steep drop in consumers' assessment of current conditions. Separately, a survey of New York State residents, conducted by Siena College, indicates that confidence rebounded modestly in August, following a steep decline in July, though it remained at a relatively low level.
Tourism was fairly lively this past summer. Manhattan hotels report that occupancy rates were steady in July and roughly the same as a year earlier, though average room rates were down 10 percent from a year earlier. There were said to be more leisure visitors this year but fewer business travelers. Separately, resort areas north of Albany report that business was relatively good over the summer.
Construction and Real Estate
Similarly, the resale market across metropolitan New York City continues to be robust. In the second quarter, prices of single-family homes were up 10-15 percent from a year earlier, based on a repeat-sales index, and real estate contacts indicate that this strength appears to have followed through into the third quarter. Sales of Manhattan co-ops and condos are also described as strong, though the rate of price appreciation has been more subdued. A leading appraisal firm reports that August was its busiest month ever, reflecting both a large number of sales transactions and a flood of refinancing activity. Contacts indicate that New York City's apartment rental market has stabilized, but that rents remain considerably lower than a year ago. Rising vacancy rates and falling rents are also reported along northern New Jersey's "Gold Coast", which is across the river from Manhattan.
Commercial real estate markets have been mixed. New York City's office market continued to slacken since the last report, though the pace has moderated noticeably. Availability rates edged up in July, while asking rents were steady in Midtown but continued to decline in Lower Manhattan. Overall, asking rents are down roughly 10 percent from a year ago, though actual contract rents are reported to be down by at least 20 percent. In contrast, northern New Jersey's industrial market has shown signs of strengthening, buoyed by robust demand for warehouse space. Brisk activity at Port Newark and Port Elizabeth is seen as a major force underpinning this market.
Other Business Activity
Recent surveys of purchasing managers and manufacturers suggest a moderate rebound in the manufacturing sector in August. Buffalo-area purchasers report a slight improvement in business conditions in August--while production activity weakened, new orders rebounded following a slump in July. Purchasing managers in the New York City area report widespread strength in the manufacturing sector in August, but continued sluggish conditions in other sectors; they also expressed less optimism about the near-term outlook than in recent months. Purchasers in both areas report little change in input prices. Separately, our latest monthly survey of New York State manufacturers indicates a moderate rebound in business activity in August, following a dip in activity in July, though improvement was a good deal less widespread than in the second quarter. However, respondents remain overwhelmingly optimistic about the near-term business outlook.
Finally, a trucking-industry expert notes that the recently announced bankruptcy of a major national carrier is not expected to have a dramatic effect on the industry overall. This contact notes that, aside from substantial escalation in insurance costs, the industry has not had major problems and that the firm's business and most of its drivers will likely move to other companies.
On the supply side, bankers continue to report tightening credit standards for commercial and industrial loans and nonresidential mortgages, but little change in credit standards for consumer lending and residential mortgages. Both loan and deposit rates continued to decrease across all categories. Declining rates were particularly widespread on home mortgages. Lenders report stable delinquency rates for all types of loans.